With the tax return deadline looming, new research from Which? reveals worrying gaps in the nation’s tax knowledge, with just over half of adults unaware of how much money can be earned tax-free.
The consumer champion quizzed thousands of members of the public in the Great British Tax Quiz, asking participants to answer “true”, “false” or “don’t know” to a range of tax-related questions.
When Which? asked if a person could earn up to £13,850 without paying any tax in the 2017/18 tax year, more than half (51%) believed this statement to be correct or did not know.
Less than half (49%) correctly said this statement was false, as the tax-free allowance for 2017/18 was £11,500.
When asked if a person is allowed to pay £25,000 into an Isa each year, two-thirds (68%) said they thought the statement was true or did not know, despite millions owning an Isa account in the UK.
Just a third (32%) correctly identified this statement as false – the annual tax-free allowance for Isas is £20,000.
The deadline to submit tax returns is 31 January 2019 and late submission can incur a fine starting from £100. Yet in the quiz, more than half (51%) believed a person could only be fined £50 for late submission and only a fifth (21%) correctly identified this statement to be false.
Two-thirds (69%) either wrongly believed that tax does not need to be paid on income or capital gains from all digital currencies including bitcoins, or did not know. Only a third (31%) knew individuals had to pay tax on profits from digital currencies, just like any other income.
As the deadline for self-assessment tax returns approaches, Which? is urging consumers to brush up on their knowledge of the tax system before getting started. Wrong assumptions or incorrect information could lead to errors – and a hefty fine.
To simplify the process and ensure consumers have the correct information, Which?’s easy-to-use and jargon-free tax calculator offers personalised tips and allows for returns to be submitted directly to HMRC.
Gareth Shaw, Head of Money at Which?, said:
“There are clear gaps in the nation’s knowledge of the tax system – with many people not even aware of the basic tax-free allowance.
“As many tackle their tax returns in the coming days, a clear understanding of the tax system will be invaluable and help thousands avoid mistakes, which could prove costly.
“Take time to brush up on the basics, and consider using online tools that will help to demystify the jargon and reduce stress.”
Notes to editors
- Which? commissioned YouGov to run a nationally representative online survey of 4,572 UK adults on their knowledge of UK taxes. We asked individuals to answer ‘true’, ‘false’ or ‘don’t know’ about a range of questions regarding UK taxes.
- The Which? tax calculator can be found here: https://www.which.co.uk/money/tax-calculator/
- Individual Saving Accounts Statistics released August 2018: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/737394/Full_Statistics_Release_August_2018.pdf
- To take the Great British Tax Quiz, please find a link here: https://www.riddle.com/showcase/177832/quiz
- Please see the below all the questions asked in the Great British Tax Quiz with the correct answers in bold:
|Question||% that answered true||% that answered false||% that answered don’t know|
|A person could earn up to £13,850 income (in 2017-2018) without having to pay any tax||34%||49%||17%|
|A person could be fined £50 if they missed the deadline to complete their tax return||51%||21%||28%|
|A person is allowed to put up to £25,000 into an ISA (i.e. an Individual Savings Account) each year||38%||32%||31%|
|Higher-earners can reduce the amount of tax they pay by making charitable donations||63%||12%||26%|
|A person doesn’t need to pay tax on bitcoin profits (i.e. monetary profits made from a type of digital currency)||14%||31%||54%|
|A person can earn up to £7,500 tax-free by renting out a spare room to a lodger||31%||19%||50%|
|A person earning £25,000 pays a higher proportion of their salary in National Insurance than someone who earns £50,000||24%||39%||37%|
|A person doesn’t have to pay National Insurance if they are self-employed||7%||79%||14%|
|If a person doesn’t pay National Insurance, they may not get the full state pension*||78%||6%||15%|
|A person doesn’t need to pay National Insurance if they are retired**||62%||13%||24%|
*Parents and carers of a child under 12 who claim child benefits can qualify for National Insurance credit that will count towards their state pension.
** You don’t need to pay any National Insurance once you reach state pension age. You only pay National Insurance on earned income, so if you are living off a pension or savings income you won’t pay any national insurance either.